Tesla share crash amid bid to kill off electric car tax break

Didn't help that the automaker's financial results also sucked

Tesla's share price took a dive Thursday morning as Republicans in
Congress revealed they were planning to kill off a US federal tax
credit for electric vehicles.

The proposed House
tax bill calls for an immediate repeal of the
$7,500-per-vehicle
credit: something that would have an immediate
knock-on impact for Tesla given that it only produces electric cars.

Its share price fell more than seven per cent to about $296 apiece
from Wednesday's $321. The draft law emerged as the Elon-Musk-led
automaker announced its worst-ever
quarter, recording a $671m loss and admitting
it had not met its production target for its new Model 3 car,
producing just 220 of them against its 1,500 target.

Click to enlarge ... Source: Google Finance

Economists believe that the tax credit is a key driver for electric
car sales, and cite the example of when the state of Georgia cut its
$5,000 tax credit and saw sales of electric cars slump from 1,400 a
month to just 100 a month in response.

As an indication of how the $7,500 helps Tesla sell more of its
vehicles, it even incorporates the figure into its pricing on its
website, noting that the total vehicle cost is reduced thanks to the
break – although you would still pay full price for the car and
then would need to claim the credit back on your tax forms.

Blueprint

The bill itself – which still has to go through Congress and is
seen as a blueprint for the Trump administration's tax shakeup –
would kill off the electric vehicle break on the final day of this
year.

Scrapping the leccy car deal will increase US tax revenues by $4bn,
it is estimated. That's a good saving seeing as the Republicans are
desperate to balance America's books while cutting the corporate tax
rate.

Tesla hits Model 3 production speed bumps, slides to loss

Under the process the Republicans intend to use to pass their tax
reform bill, it is necessary for the country's figures to balance –
any cuts have to be met with additional tax income. So far, the plan
is expected to cost the Land of the Free $1.5tr over 10 years.

As such, those behind the plan either have to find additional
income, reduce their planned cuts, or take a different tack
altogether, while bagging sufficient support from the Democrats to
get the whole shebang approved. In short, anything in the current
plan that increase tax revenue is unlikely to pulled out.

It's not just Tesla that will be hard hit by the removal of the
federal tax credit: General Motors has been pushing its Chevy Bolt
electric car, and under California state law, it is required to sell
a certain percentage of electric cars each year or effectively pay
for not doing so by purchasing green credits.

GM said in a statement following the news: "Tax credits are an
important customer benefit that can help accelerate the acceptance
of electric vehicles. Because General Motors believes in an
all-electric future, we will work with Congress to explore ways to
maintain this incentive."

Tesla has yet to respond – even though the markets have already
spoken. ®

Will Tesla ever be able to compete in the commercial vehicles
market?

This is what being “deep
in production hell” looks like. Yesterday
Tesla reported wider-than-expected losses of $671M for the third
quarter, the largest quarterly loss in the company’s history,
which comes right on the heels of a $336M loss in Q2. In the third
quarter of 2016, by comparison, Tesla posted a profit of $21M, and
reported total losses of $773M for the entirety of 2016.

“Judged as a car company, Tesla is currently producing a tiny
volume of cars in unpopular segments with an uncompetitive unit cost
for the mass market,” wrote Moody's Analytics Managing Director
and Senior Auto Economist, Tony Hughes, following the report.

Last month, Elon Musk delayed the unveiling of its electric
semi-truck, blaming it on Tesla’s delivery of solar panels and
battery systems to Puerto Rico in the aftermath of Hurricane Maria.
There are many indications, though, that Tesla will struggle to
compete in the commercial vehicles market, even after it finishes
turning the lights back on in San Juan.

Here’s why. Electric cars are not attractive enough to consumers
to compete with conventional combustion engine vehicles unless they
are propped up by generous government subsidies. Denmark just proved
this by removing tax incentives for electric car purchases in order
to ‘level the playing field’—and Tesla
sales in Denmark cratered, dropping 91% from
2,738 cars in 2015 to just 176 cars sold in 2016. Electric
semi-trucks will not enjoy those tax incentives in the United
States.

And since Tesla can’t manage to turn a profit selling even its
heavily subsidized personal cars, observers doubt that the company
will be able to successfully enter the commercial truck market.
Fleet owners base their purchasing decisions solely on total cost of
ownership (TCO), and there is no reason for them to pay luxury-car
premiums for long haul trucks they’ll use for an average of three
years.

“There's a basic premise here: personal vehicles are bought from
the heart; commercial vehicles are bought from the mind,” said
Sandeep Kar, the chief strategy officer at Fleet Complete.

In October, Tesla came under fire from Matthias Müller, CEO of
Volkswagen (which owns roughly 20% of Navistar, one of Tesla's
competitors in the commercial truck space), who dismissed
any comparison of Tesla with established
carmakers: “There are companies that barely sell 80,000 cars a
year. Then there are companies like Volkswagen that sell 11 million
cars this year, and produce a profit of 13 or 14 billion euro. If I
am correctly informed, Tesla each quarter destroys millions of
dollars in the three digits, and it willy-nilly fires its workers.
Social responsibility? Please. We should not get carried away and
compare apples with oranges.”

Warning signs have been trickling out about Tesla’s struggles to
get production of its Model 3 off the ground since the spring. In a
March conference call with investors, Tesla CEO Elon Musk justified
his decision to skip
beta testing for the Model 3, saying that
doing so would help Tesla meet its production goals. Tesla predicted
that it would manufacture 1,500 Model 3s by the end of September,
but was only able to build 222. The bottlenecks up and down Tesla’s
supply chain and production lines raise questions about the
company’s ability to enter the rigorous semi-truck market.

“They will face many, many challenges. The design, production, and
testing of commercial vehicles is a completely different ballgame.
You're talking about transcontinental routes across different
climates and terrain, and very complex driving conditions that
change with different kinds of loads,” said Kar. "I do admire
Tesla’s intention to create a truck that offers fuel cost
reduction and driver retention benefits. If they are able to develop
a 200 mile without charge truck, then they can truly disrupt and
transform the market. I just don't know if they can pull it off,"
Kar continued.

The difficulties Tesla has had with the Model 3 this year have
opened the company up to more fundamental criticisms. In June,
ZeroHedge published a
takedown of Tesla’s much-vaunted ‘lean
manufacturing’, showing that its production lines in Fremont are
much less efficient than when NUMMI (a GM and Toyota partnership)
ran the plant 20 years ago. In 1997, NUMMI produced 357,809 vehicles
with 4,844 workers (74 cars per worker); in 2016, Tesla produced
83,992 vehicles with between 6,000 and 10,000 workers (8-14 cars per
worker). To put it simply, Tesla’s ‘lean manufacturing’ is
about 1/7 as efficient as NUMMI was 20 years ago.

Musk evokes sleek, robotic future-spaces when he indulges his
fondness for sci-fi prophecy, but last month the Wall Street Journal
reported that parts of the Model 3 are
still being built by hand. During yesterday’s
announcement Tesla pushed back production targets again: where the
company was supposed to produce 5,000 Model 3s a week in the fourth
quarter of 2017 and begin producing 10,000 3s a week in 2018, now
Tesla hopes to reach the 5,000 weekly production target by late in
the first quarter of 2018.

Tesla’s investors still think the company is worth far more per
car sold than any other automotive manufacturer. Tesla is sitting
high at a market cap of $800K per car sold in 2016; by comparison
BMW is at $25K, Ford is at $6K, and GM is at $5K.

"It’s
either one of the great Ponzi schemes of all time, or it’s all
going to work out,” mused Mike Jackson, CEO of AutoNation,
the largest dealer group in the US, while commenting on Tesla’s
counterintuitive valuation.

Some of the smart money is betting against Tesla. The Los Angeles
Times interviewed
four investors who have taken huge short positions worth about 20%
of Tesla’s outstanding stock. Why are they taking dangerous bets
against a company whose investors seem willing to give them
unlimited cash to burn? “If you can’t make money selling a
$100,000 car to rich people, how are you going to make money selling
a $45,000 car to normal people?” said David Rocker, a retired
investment manager formerly with Rocker Partners.

David Spiegel, of Stanphyl Capital Management, was even more
bearish: “I’m saying they’re going to lose money on every
Model 3 they build and sell.” Tesla’s profit per car plummeted
from $2,000 in the first quarter of 2013 to -$14,000 by the first
quarter of 2016.

Commenting on the spate of electric vehicles coming onto market—the
Chevy Bolt in 2016, the 2nd gen. Nissan Leaf in 2017, and the Lucid
Air, Hyundai Ioniq, Audi A3 e-tron, Jaguar I-Pace, and Aston-Martin
RapidE all set for 2018—Spiegel said, “Once the market is
flooded with electric vehicles from manufacturers who can
cross-subsidize them with profits from their conventional cars,
somewhere around 2020 or 2021, Tesla will be driven into
bankruptcy.”

Will Musk continue to raise billions of dollars to cover Tesla’s
losses indefinitely? “We’re awfully close to the point where
people wake up and realize these guys are seriously diluting our
equity” with new stock and convertible bond issues, said Mark
Yusko, founder and chief investment officer at Morgan Creek Capital
Management.

MUSK
EXPOSED AS A FRAUD

Musk's assertion that journalists and editors lack
integrity for reporting on this doesn't really hold water.

Musk claims that:

Every company in the world holds annual performance reviews

Comparing Tesla's firing of 2% of its employee base for
performance-based reasons is "a remarkably lower number
compared to other companies"

The problem with that? For one thing, GE--the company Musk
references--has gotten
rid of performance reviews (just like
countless other companies), because they've deemed them
impractical, outdated relics of a management era that was
out-of-touch with its people.

Secondly, remember that Musk's whole strategy hinges on not
following the crowd. Any attempts to favorably compare Tesla to
much larger companies is simply asking for trouble.